I think everyone can work out that 2.5 metres of moulding at £2.30 per metre is costing £5.75, or that half a sheet of a £4.30 mat board is £2.15. It's reasonably straight forward calculation, so much so, that in general material costs are considered far more than the labour cost of pricing a frame, almost always to the detriment of profitability.
Of course materials are a cost of making the frame, in most cases between 20-40% of that cost. There are however other cost elements relating to the ordering and stocking of materials that are rarely considered.
These can have an often un-recognised impact on profitability.
Proportioning waste is definitely a factor to consider, but it should be recognised that waste is a small cost of the smaller cost of making the frame. Materials may be 30% of the cost of making
the frame and wastage may be 30-50% of that cost, making it somewhere in the vicinity of 10-15% of the overall cost of making the frame.
The amount of wastage your business creates will also vary depending on the business model. Production framers with a smaller range of materials will have a much less wastage than a bespoke
business offering a large sample selection with a lower volume of framing.
It is very easy to see the value in an off-cut of moulding, mat board or glass. After all you’ve paid for it, right! There is however, a greater hidden cost to these off-cuts that is rarely considered.
Because off-cuts are seen as having value, questionable quantities of these tend to be held in stock for that occasion when they may be needed. Holding onto this stock is most likely costing
you much more than disposing of it.
Stock takes up valuable floor space, especially moulding which is difficult and bulky to store. Holding stock that is doubtful in its usefulness demands
expensive floor space and is costing your business money.
Excess stock also cost money in other ways. If materials are disorganised or difficult to access because of over stocking, valuable time can be lost looking for materials of far less value than the time
taken searching for it. This can be a hard to conceptualise, but let’s have a look at a practical example.
Mary’s hourly rate is £40.00 per hour, this means five minutes of her time
is costing her £3.33. If Mary spends five minutes looking for a £1.15 quarter sheet piece of standard mat board she is going to be over £2.00 in deficit. Even if she spent only two minutes searching
she is still in deficit! It is much harder to rationalise the value of time against a tangible commodity like materials, but it's hard to argue when you look at the numbers. Making sure your stock is organised and levels controlled will save a great
deal more time and money than holding onto every piece of off-cut.
Stock spilling out into walkways or sitting on top of machinery and benches also have a detrimental effect on time
efficiency. It's not uncommon see framing shops moving artwork, stock or finished frames out of the way so that the next manufacturing process can be performed, just consider how much expensive time
is taken up each day and then multiply it over a year, the cost is staggering. Actually sit down and do the maths, you will be astounded.
By maintaining an optimum stock level there is more opportunity to use the space more productively or even start renting less space. Either way you will be ahead.
The best businesses carefully monitor the lines they sell. It’s all very well to think, I’ll have 500 mouldings samples on the wall because this looks impressive and I don’t need to stock them all, but we all know the
remainder of these mouldings builds up over time until you can't find anything because your moulding storage is cluttered and overflowing with rarely used moulding offcuts.
Not monitoring what lines are selling is a sure way of losing money by way of over stocking and excess freight and storage costs.
It's helpful to have a diverse selection to try and meet the
requirements of your customers, but try not to put yourself in a situation where you are left holding superfluous stock that you have little chance of moving.
Chop services can be a good way of minimising stock holding and definitely worth considering if you want to offer
more distinctive mouldings that are slower movers.
Having good software will help keep you well informed of which materials are your best sellers and those not worth having on display. Every good, efficient
business should demand this information to help make decisions on the correct materials to buy and the correct quantities to keep.